These Stocks Will Be On Fire In 2013!
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sales of Farm equipment makers have been relatively high this year, despite drought situations. That gives a positive sign, but some part of this increase may also be assigned to the tax benefits available till the year end as well as the high margin in agricultural sales. It will be interesting to see how the year 2013 treats the farmers with “moisture” playing the dominant role.
Last six months, seems to be bidding well for the equipment manufacturers. Both Deere & Co. and AGCO have been rallying up slow and steady and I anticipate this trend to continue. For CNH though the ride wasn’t relatively smooth, but I think at this moment it also opens up a good entry point for the investors.
Deere & Company (NYSE: DE): Deere is the second largest player of construction equipment in North America and the demand for this equipment is estimated to reach 1.76 million units into 2018 creating more revenue generating opportunities. Currently, Canada and United States contributes ~60% of its sales. Talking about emerging markets, Deere has played its bet on Brazil, India and China. In China it invested $250 million which include R&D and assembling of plants. Coming over to the Brazil market, Deere sees growth opportunities in soy, cotton and sugarcane. Though Deere still has to break even its investment costs in China and Brazil, as sales leverage comes to play we can definitely anticipate an upside in the revenue.
On the other hand CNH Global (NYSE: CNH) CNH Global has entered into a merger with Fiat industrial which it previously rejected. This merger has made them the third largest capital good maker by sales and further strengthening its position in the global economy. Fiat Industrial, which designs and produces agriculture and construction equipment, trucks and commercial vehicles, will now be acquiring the remaining 12% of the company. With the increasing demand of the agriculture equipment CNH Global had a good 3Q12 where its revenue was up 18%. I think this downside which we are seeing in the stock is momentary and this stock will soon rise up to its older levels.
Coming over to AGCO Corp (NYSE: AGCO), I think this stock has strong fundamentals and should be a good bet. In 3Q12 its revenue was up 9.3% as compared to the 3Q11 and I anticipate a rise of at least ~5% for the next year. It has laid down its expansion strategy on emerging markets and new products, which will add to its income statements in years to come.
African Focus: AGCO will be investing $100 million in Africa over the next three years. It will be building tractor parts distribution warehouses valued at about $15 million each in East and West Africa. The company made an agreement with Algeria Tractors Co. for building a production plant for the manufacturing of Massey Ferguson tractors. By making an agreement with a local manufacturing company, AGCO will be growing a strong presence in Africa. As Africa comprises 60% of the world's total uncultivated land and the population of Africa is expected to reach two billion by 2050, there will be more need for mechanization and creating huge opportunities for AGCO.
Investment/Upgradation of Product Line: The Company will be launching 21 new/upgraded tractors 9 new/upgraded harvesters in 2013. These new launches will help AGCO to achieve its target pricing increment goal of ~3%, which will also be a margin supporter. Also AGCO’s Centurion program which aims at consolidating five tractor families of 55-130 hp into one modular tractor which is all set with new introductions from 2014 to 2016. This program will offer a full range of cost efficient tractors addressing the markets from Africa to Europe.
AGCO's Cost saving program, Global Purchasing Excellence, which is meant to reduce the cost of materials have started showing progress. These programs have contributed in cost saving of $40 million and $20 million in 2012. As these cost saving initiatives are ramping up the company expect to save $160 million by 2015 from its Global Purchasing Excellence Program yearly while its Best Cost Country programs is expected to save $80 million by 2015.
Summing up, I think elevated crop prices (relative to historical averages) and Investor’s confidence will drive the above three stocks' upside in the year to come. Though drought may result in curbing farmers' purchases, that should be offset by their expansion in emerging economies like Brazil, India and China.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!